TY - JOUR
T1 - Limiting the distortionary effects of transaction taxes
T2 - Scottish stamp duty after the Mirrlees Review
AU - Borbely, Daniel
N1 - Funding Information:
This is due to the procedure of block grant adjustments whereby, each year, the fiscal support from the UK government (block grant) is adjusted to take into account the tax revenues raised from devolved taxes in Scotland. This means that the proposed Scottish budget has to be announced early to allow the forecasting of tax revenues from devolved taxes and the resulting adjustments to the block grant from the UK (Eiser, 2017 ).
Funding Information:
This paper formed part of a PhD programme within the Department of Economics, Strathclyde Business School, which was fully funded by the University of Strathclyde. I would like to thank two anonymous referees, and participants at various conferences for their helpful feedback and suggestions. I am grateful to the Glasgow Urban Big Data Centre for granting me access to the Registers of Scotland data.
Publisher Copyright:
© 2021 The Author. Fiscal Studies published by John Wiley & Sons Ltd. on behalf of Institute for Fiscal Studies
PY - 2021/6
Y1 - 2021/6
N2 - We investigate the distortionary effects of transaction taxes through a case study of the Scottish residential property market. We make use of four sources of variation in transaction tax rates present in recent Scottish tax systems: (1) jumps in tax liabilities at tax thresholds; (2) jumps in marginal tax rates at thresholds; (3) a tax announcement that created temporary tax saving opportunities; and (4) a shift to a more progressive transaction tax regime. Our results indicate that market participants are highly responsive to tax changes and are willing to change the price and timing of transactions when tax savings opportunities are present. We also find that progressive reform had a significant positive effect on transaction activity in the market segment where tax rates were reduced. However, the higher end of the market, where tax rates increased, was mostly unaffected by progressive reform, with the exception of the market for very expensive properties, where a negative effect is identified. Implications of our findings are that if governments want to make transaction tax regimes more efficient, progressive taxation might be a good way to limit distortionary effects, whilst also encouraging transaction activity in the lower end of the market.
AB - We investigate the distortionary effects of transaction taxes through a case study of the Scottish residential property market. We make use of four sources of variation in transaction tax rates present in recent Scottish tax systems: (1) jumps in tax liabilities at tax thresholds; (2) jumps in marginal tax rates at thresholds; (3) a tax announcement that created temporary tax saving opportunities; and (4) a shift to a more progressive transaction tax regime. Our results indicate that market participants are highly responsive to tax changes and are willing to change the price and timing of transactions when tax savings opportunities are present. We also find that progressive reform had a significant positive effect on transaction activity in the market segment where tax rates were reduced. However, the higher end of the market, where tax rates increased, was mostly unaffected by progressive reform, with the exception of the market for very expensive properties, where a negative effect is identified. Implications of our findings are that if governments want to make transaction tax regimes more efficient, progressive taxation might be a good way to limit distortionary effects, whilst also encouraging transaction activity in the lower end of the market.
KW - behavioural responses to taxation
KW - notches and kinks in tax systems
KW - property markets
KW - transaction taxes
UR - http://www.scopus.com/inward/record.url?scp=85107338014&partnerID=8YFLogxK
U2 - 10.1111/1475-5890.12270
DO - 10.1111/1475-5890.12270
M3 - Article
SN - 0143-5671
VL - 42
SP - 265
EP - 290
JO - Fiscal Studies
JF - Fiscal Studies
IS - 2
ER -